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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerYesterday I bought some more shares of Washington Mutual (NYSE: WM) at $39. Basically, I had to put my money where my mouth is because I have written about it as a safe haven and a defensive stock so often. Now with the sub-prime lending ruckus filling the headlines and driving the stock price down I thought I would take advantage of the fear in the market place. This is another wonderful stock for long term investors.
If you have money in a WaMu CD at the Online rates (which are higher than walk-in) you are receiving a smaller return on your investment than if you bought the stock which currently is yielding 5.56% - and you have no future appreciation.
| WaMu Online CD - California | ||
|---|---|---|
| Terms (Months) | Interest Rate* | Annual Percentage Yield (APY)* |
| 5.27% | 5.40% | |
| 4.98% | 5.10% | |
| 4.07% | 4.15% | |
| 4.07% | 4.15% | |
| 4.12% | 4.20% | |
| 4.98% | 5.10% | |
There is no question that WaMu could drop further and that may have been able to buy it at a lower price. I have no idea where the bottom is, but for those of you interested in watching this one and possibly seeing long-term gains plus current income consider the following data points:
Looking at a few mediocre data points I would point out that the price-to-cash flow ratio of (P/CF) of 14.89 is nothing to be impressed by, nor is the return-on-equity (ROE), return-on-assets (ROA) or the return-on-invested-capital (ROIC). Worst of all is the long-term debt-to-equity ratio of 3.5, which is not good regardless of WaMu's ability to cover it with its substantial cash flow.
I have done well buying stocks when others are running in fear. Last month I wrote Chasing value: Aluminum Corporation of China ADS after the Chinese stock market plunged when ACH was at $22.98. I bought in at $22.00 on a momentary dip and yesterday it closed at $29.00. It is trading above $30 today (35% one month return) and might still be a bargain. I will have to review it again in another post.
If you are interested in long-term value investing read Chasing Value.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out my other posts for BloggingStocks here.
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Reader Comments (Page 1 of 1)
4-11-2007 @ 2:41PM
topgon said...
They seem to have brand issues hey if they cant decide who they are why should I care who they are.
4-11-2007 @ 3:58PM
ethanenglar said...
While WaMu according to your fundamental analysis seems relative cheap, the stock price has been in volatile mode and out of favor for quite some time (I personally own WaMu since Jan 2004). While general stock market has steadily rising ever since, WaMu seems to have troubles with its brand identity and customer base. I would like to think that WaMu is a "Chasing Value" but i find it hard pressed.
4-11-2007 @ 6:11PM
Sheldon L said...
Ethan,
I do not disagree with your comments. I have watched WM float around in the low 40's for a while with the occasional bump above that. But knowing this is a low point over the last few years is something that weighed in my considerations. The high, consistent dividend is another. Something that I also considered but did not mention is the potential M&A opportunity for an eastern bank looking for a west coast footprint. Thank you for taking the time to add your perspective.
4-11-2007 @ 9:45PM
Mr. noitall said...
Sorry Sheldon, I think you're wrong about this one. I've read that they didn't unload alot of their mortgage risk like most of the other banks did. Like I said before I like your commodity & energy based businesses, I think if you review your picks you will find that those have been the best performers for you.
4-11-2007 @ 10:55PM
R. Noonan said...
I tend to agree with Sheldon on this one. It depends on your time horizon. There is no guarantee of capital appreciation this year as there is too much unknown. But if you look 18 to 24 months out, I expect this stock to be trading closer to the mid-40's... unless it gets taken out by HSBC or Citi. When you add in the dividend, that's a decent return for the patient investor. By the way, the coverage on the dividend is strong, so there does not appear to be any risk of that getting whacked. Also, consider that home mortgages are not the only business at Wamu, nor are the majority of the mortgages sub-prime or Alt-A. Earnings may take a haircut, but it will not be a scalping. A couple posts mentioned brand or identity issues. I would be interested in hearing more about that. I am aware of none, but perhaps it depends on your market.
4-13-2007 @ 11:04AM
charles said...
I am so happy when a writer actually buys the stock he talks about.
I am long on WM with some covered calls.
It goes X-div in May and I am sure we will be above 40 when it does.
so buying right here and selling apr 40 calls are great.
and they wait for 40.
4-18-2007 @ 6:16PM
charles said...
We hit 40 alot sooner than I thought.
What a wonderful day!